At last: TiVo trims prices to pursue HD customers. But is it enough?

July 24, 2007, 10:46 AM UTC

Buy a high-definition TV to watch HD cable channels, and your world changes. Suddenly you can see erstwhile invisible crow’s feet around the eyes of aging actors, and standard DVDs bear a grainy resemblance to YouTube video. Like some modern Greek hero, you’re blessed and cursed with the ability to see TV as it really is.

And you have a sudden craving for a slew of new HD devices.

I experienced this transformation nearly a year ago, when I bought a 56″ Samsung DLP from (AMZN). It’s not that I’m an avid TV watcher – my wife takes that title for our household – but the electronics geek inside me took over. The two main objects of my gadget-lust were high-definition players and HD digital video recorders.

The annoying format war between HD DVD and Blu-ray has been enough to keep me on the sidelines of the HD player game for now, and high prices had kept me away from HD DVRs – TiVo’s (TIVO) offering weighs in at a hefty $799. But today TiVo announced that it will sell a scaled back HD box with a 160-gigabyte hard drive that records as much as 20 hours of HD programming in high definition for about $300. (The previous version had a 250-gigabyte drive, plus THX certification and other extras I don’t care too much about.) You must also pay for at least one year of TiVo service, which is a pricey $16.95 per month or $179 per year. There are discounts if you commit to more than one year – most notably, the three-year prepaid plan is $299, which comes out to about $8.31 per month.

This price drop will probably be enough to hook me. I’ve avoided my cable provider’s HD box, because I feel like the cable boxes are generally cheap, and I give that company enough of my money as it is. Plus, my wife has been mentioning lately that she wants a DVR; and as any gadget-loving husband will tell you, when your wife starts requesting home electronics, that’s like free money. You don’t turn it down.

So I think this amounts to a smart business move for TiVo. While competitors, including Apple (AAPL), are selling boxes more suited for standard definition (Apple TV costs the same initial $299, but comes with a quarter of the storage at 40 GB), TiVo can start to grab mindshare from the HD junkie crowd.

I do have a lingering concern about TiVo’s subscription model, however. On the one hand, it’s clearly the only reason TiVo can afford to sell a box with a 160 GB hard drive for $299 – the company is using the hardware as a loss leader, and is instead making profits on the subscription revenues. At the same time, though, there’s a question of value. That $16.95 per month is a lot to pay for a subscription service, and TiVo has always had a hard time showing new customers that its offering is worth the price, when its telco competitors seem to charge less for similar service.

Long-term, TiVo could find itself in a similar pinch to the one Netflix (NFLX) is facing now. Though Netflix pioneered a new model for delivering video content, old-school rival Blockbuster (BBI) is catching up by copying Netflix’s model while leveraging its legacy advantages. TiVo could similarly find itself overtaken by cable and satellite players who already have billing relationships with customers, and who only need someone to provide cheap commodity DVR boxes. (These tactics from the telcos are already hurting TiVo.)

What’s TiVo to do? I still believe the stock, with a market cap of just over $590 million, would be a bargain purchase for online advertising players like Google (GOOG) or Microsoft (MSFT). Either company could easily extend its video advertising network onto the boxes of TiVo subscribers while delivering Internet video content – a new ad network scenario that could deliver measurable benefits. Long-term, TiVo’s owner could further subsidize the equipment for buyers who agree to allow their TV surfing habits to be tracked, the same way Google and Microsoft track the Web surfing habits of their users today.

  • Overview of the latest HD DVR from TiVo:
  • Controls cable TV with Record, Pause, Rewind, and Fast-Forward in HD
  • Records two HD channels at once, while watching another recorded show
  • Records up to 20 hours in HD (or 180 hours in Standard Definition)
  • Designed specifically for cable customers1
  • Video output modes include: 480i, 480p, 720p, 1080i
  • Product Features:
  • Download thousands of movies directly to your TV**
  • Share home movies with your friends and family on their TV**
  • Get broadband videos, music and photos on your TV**
  • Schedule shows online**
  • Discover broadcast and broadband shows with universal Swivel Search**
  • Easily pre-approve what your kids watch with TiVo KidZone

Product Dimensions:

16.5″ W x 12.625″ D x 3.375″ H

Weight: 12 lbs.

  • Product Specifications:
  • Signal sources: Digital cable, Analog cable, Digital antenna (ATSC) and Analog antenna channels (satellite not supported)
  • Outputs: HDMI, Component video, S-video, Composite video, Optical audio, Analog audio
  • Video output modes include: 480i, 480p, 720p, 1080i
  • Inputs: Dual CableCARD support (2 slots), Cable coax, Antenna coax
  • Ethernet connection, USB 2.0 ports (2), phone line, E-SATA***
  • Works with the TiVo Wireless G Network Adapter
  • TiVo Series3 architecture
  • Included in Box:
  • TiVo HD box
  • TiVo remote control
  • Manual
  • Quick Start guide
  • Composite, Component, Power cables
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